BAE profits soar to more than £1bn

BAE Systems, Britain's biggest arms manufacturer, increased annual profits by more than a third to over £1bn last year, driven in part by booming US business from the conflicts in Iraq and Afghanistan.

The company, which has come under severe pressure over alleged corruption in securing contracts, also insisted today it had been "clear and consistent in denying any wrong doing".

Operating profits for the calendar year hit £1.054bn, nearly 39% higher than the equivalent figure for 2005, on sales of just under £13.8bn.

Its shares were trading 18.5p higher at 465.75p by 2.30pm, an increase of over 4.1%

Orders increased to £31.7bn, mainly due to US demand for land vehicles and arms and contracts to support the Tornado fighter aircraft. The company, which unloaded its 20% share in Airbus in May, also reported good progress in Saudi Arabia, a market about which it faced severe pressure last year due to long-standing corruption allegations.

In December, BAE was the focus of unwelcome headlines around the world when the government ordered the Serious Fraud Office to halt a major criminal investigation into allegations BAE paid bribes to Saudi officials in return for orders.

The government was heavily criticised over the decision by, among others, international anti-corruption agency the Organisation for Economic Cooperation and Development.

The SFO investigation into Saudi contracts had led to fears that the company could lose a large order for Typhoon aircraft from the Kingdom. Today, in an oblique reference to the government decision to halt the investigation, chief executive Mike Turner told financial analysts: "Following the problems during the aautumn the contract negotiations for Typhoon, including a time table for delivery, are progressing."

In a wider comment on reports of corruption investigations facing the company, Mr Turner said the allegations were "all unsupported by evidence. We have been clear and consistent in denying any wrong doing."

He made it clear that BAE was seeking to expand the company's international reach. "We are moving from a transatlantic group strategy to one with a global focus."

He said the company was continuing to look for acquisitions in the US but acknowledged that the US government's continued heavy spending on defence and security had pushed up valuations." "The US is hot," he told the analysts, adding that BAE would not be drawn into over paying for defence assets.

The group hailed the performance of its expanded US operations as "excellent".

"The company's profits depend on major, UK government-supported, export contracts around which there are unresolved allegations of corrupt commission payouts and pending prosecutions or on favoured contracts for Government procurement."

The government ordered the Serious Fraud Office to halt a bribery investigation involving a BAE Systems deal before Christmas on the grounds that it threatened Britain's national interest.

Sales for 2006 were boosted by more than £1.5bn by the acquisition the previous year of US armaments firm United Defense, BAE said, much of this due to the continued American military presence overseas.

"The focus on current operations in Afghanistan and Iraq is generating a high level of armoured vehicle reset activity such as the return of Bradley [armoured] vehicles to 'as new' condition," BAE said.

"Substantial funding" had been made available for such work, the company said, explaining that this was likely to continue into this year. "Looking forward to 2007 we anticipate a further year of good growth led by our US businesses, in particular from the land and armaments sector, and from further progress in the programmes business," the report said.

BAE "continues to look for opportunities to grow its US business by acquisition", the company added. At home, the company said, it was also progressing well, thanks in part to the continuing contract to supply Typhoon fighter planes, 38 of which are now in service with the RAF.

It also expressed relief about finalising a deal to address deficits in its UK pension scheme, calling the arrangement "a good outcome for all parties".

The company additionally served notice it is contemplating purchases to increase its naval business, following a proposal last March to take over naval and military supply firm Babcock International in a joint bid with shipbuilder VT Group.

"These initial discussions were not taken forward but opportunities for consolidation of the UK naval industry continue to be explored," BAE said.